Ambit Coffee Can Portfolio€¦ · Portfolio composition = Concentrated portfolio of 10-15 stocks...

PRIVATE & CONFIDENTIAL. NOT FOR CIRCULATION

Ambit Coffee Can Portfolio

April 2019

PRIVATE & CONFIDENTIAL. NOT FOR CIRCULATIONAmbit Capital Pvt. Ltd.

AMBIT ASSET MANAGEMENT – BROAD OVERVIEW

2

Investment framework focussing on Quality

Process-Driven Approach

• Highly qualified team of MBA’s, CA’s & CFA’s with deep-dive equity research experience &specializations across various sectors.• A 5-member highly experienced & distinguished Investment Committee in place to review allinvestment decisions.• Full-fledged support of Ambit Group with over 400+ experienced employees spread acrossinvestment banking, institutional equities, equity capital markets, private equity, privatewealth, NBFC, among others.

• Companies with robust capital allocation track record and high quality of financial metrics• Companies that meet our high benchmarks on accounting and corporate governance• While the objective is to generate returns, the even bigger goal is to best manage drawdowns

Our various Offerings spread across the market spectrum

Good & Clean Portfolio

(Mid-Cap Focussed)

Coffee Can Portfolio

(Large-Cap Focussed)

Emerging Giants: G&C Small Cap

(Small-Cap Focussed)


Coffee Can Portfolio Philosophy

3

Consistent track recordCompanies having excellent financial

track record of revenue growth and

earnings for over 10-20 years.

Market Leaders in B2C sectors

Most companies in our portfolio

dominate their markets and possess

unassailable competitive advantages in

their core industries.

Do not attempt to time the market on the

basis of speculation surrounding oil price,

exchange rates, politics or other non-

fundamental factors.

Do not “TIME” the market

Low/Negligible Churn

Coffee Can Portfolio is a highly

concentrated portfolio with 10-15

stocks and intended churn of less

than 1 stock per year on average.

This allows the portfolio to benefit

from “Power of Compounding”.

Long Term Wealth Creation

Coffee Can Portfolio intends to provide

20-25% CAGR returns over long term

holding periods with volatility of portfolio

similar to Govt. bonds (holding period>3

years).

Coffee Can portfolio


Coffee Can approach seeks a unique DNA in companies

4

0%

2%

4%

6%

8%

10%

12%

14%

16%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

1962 1972 1982 1995 2002 2012

Revenue (CAGR for Prev. 10 years) PBT/Capital Employed (LHS) PBT Margin (RHS)

Asian Paints = Consistency over seven decades

DNA to deliver consistent

growth decade after decade

Talent Focus on core

business

Professional empowerment

Truly Independent

Board

Evolving competitive advantages

IT = backbone

Source: Bloomberg, Company, Ambit Capital


Earnings growth is the biggest driver of share prices…

5

Page Industries Mkt Cap (Rs cr) Trailing EPS Trailing P/E (x)

Apr-08 545 21 23

Apr-18 26,827 296 81

CAGR 48% 31% 12%

Source: Ambit Capital Earnings contributed to ~80% of the share price growth

Source: BSE, Ambit Capital

Sensex Price and EPS are based to 100 on Jan 1991

-

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500Jan-91

Jan-92

Jan-93

Jan-94

Jan-95

Jan-96

Jan-97

Jan-98

Jan-99

Jan-00

Jan-01

Jan-02

Jan-03

Jan-04

Jan-05

Jan-06

Jan-07

Jan-08

Jan-09

Jan-10

Jan-11

Jan-12

Jan-13

Jan-14

Jan-15

Jan-16

Jan-17

Jan-18

Jan-19

Sensex Index Sensex EPS


‘Timing’ = Futile when earnings are consistent + strong

6

Scenarios

Starting P/E (x) - trailing

Ending P/E (x) - trailing

Number of years

EPS CAGR

Price CAGR

D

55

30

3

25%

2%

C

55

40

3

25%

12%

B

55

30

10

25%

18%

A

55

40

10

25%

21%

Earnings Growth

Change in P/E

Total Shareholder Returns


To Put it simply – We’re Answering two obvious questions

7

“Which company’s stock should I buy?” “For how long should I hold this stock?”

Type 1:

Volatile earnings (could be due to

external or internal factors)

Type 2:

Consistent earnings

Type 1:

Time it well

Type 2:

Forever (as long as its competitive

strengths sustain)


1,574

4,091

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

January-04

July-04

January-05

July-05

January-06

July-06

January-07

July-07

January-08

July-08

January-09

July-09

January-10

July-10

January-11

July-11

January-12

July-12

January-13

July-13

January-14

July-14

January-15

July-15

January-16

July-16

January-17

July-17

January-18

July-18

January-19

Larsen & Toubro (Rebased to 100)

Asian Paints (rebased to 100)


Should approach rely more on forecasts or on history?

8

“I only understand the DNA which will take care of the

future”

● ‘Ambit’s Coffee Can

PMS’ type of in-depth

research

“History will repeat itself in future”

● Run a historical filter-

based Coffee Can

annual portfolio

“I Know the future”

● Forecast earnings and

events

Option 1

Option 2(a) Option 2(b)


Our investment approach

9

Coverage universe = 31 stocks with 10-20 years of historical track record of consistency (for at least 90% of the 10-20 years historical period)

Consistently > 10% YoY revenue growth Consistently > 15% ROCE

Our competitive advantage = Deep understanding of organizational DNA

Portfolio composition = Concentrated portfolio of 10-15 stocks

Marry valuations with longevity

Will the firm sustain CONSISTENCY of growth in future (more than a decade)?

Churn (if required) = <1 stock per year on average

Monitor earnings potential of companies in portfolio


Coverage Universe & Portfolio Construct

10

BFSI23%

Home Building16%

Consumer Staples13%

Consumer Discretionary

19%

Retail10%

Auto7%

IT6%

Pharma6%

31 Stock Coverage Universe

Home Building 31%

Consumer Staples 25%

BFSI 10%

Cash 9%

11 Stock Portfolio

Consumer Discretionary 20%

Diagnostics(Retail) 5%

PRIVATE & CONFIDENTIAL. NOT FOR CIRCULATIONAmbit Capital Pvt. Ltd. 11Source: Bloomberg, Ambit Capital

CCP: Capital protection for 3 yrs or longer holding period

95% Confidence Interval

1 Year 3 Year 5 Year 7 Year 10 Year

Upper Bound of 95% 96% 49% 38% 36% 33%

Median 21% 23% 23% 23% 24%

Mean 28% 24% 24% 24% 24%

Lower Bound of 95% -41% 0% 10% 11% 15%

28%24% 24% 24% 24%

-60%

-40%

-20%

0%

20%

40%

60%

80%

100%

120%

Sh

are

ho

lder

retu

rns f

or

95%

co

nfi

den

ce in

terv

al

(CA

GR

%)


Risk-Return profile – CCP vs Sensex vs Govt. Bond

12

-5%

0%

5%

10%

15%

20%

25%

30%

35%

40%

7% 10% 13% 16% 19% 22% 25% 28%

Standard Deviation %

Return % (CAGR)

1 Year

3 Year

5 Year

7 Year

10 Year

1 Year

3 Year5 Year

7 Year

10 Year1 Year Quality

Premium

Grey = Sensex

Red = Coffee Can

Blue = 10 yr Govt bond

Bubble size = Holding period

Worst quadrant – high risk and low return

Best quadrant – low risk and high return


Stock 1 (HDFC Bank)Sensex

Coffee Can Stocks’ resilience vs Sensex

13

Stock 2 (Berger Paints) Stock 3 (Asian Paints)

Stock delivered positive returns while Sensex was negative

Stock delivered negative returns while Sensex was positive

RHS skew of CCP histo-grams

More greens than reds

Sensexreturns evenly spread

NEGATIVE RETURNS POSITIVE RETURNS

FY98

FY05

FY07

FY08 FY94

FY97 FY11 FY00

FY95 FY99 FY14 FY04

FY93 FY03 FY02 FY96 FY17 FY06

FY09 FY01 FY12 FY16 FY13 FY18 FY15 FY10

Less

than

-30%

-20% to

-30%

-10% to

-20%

0% to

-10%

0% to

+10%

+10% to

+20%

+20%

to

+30%

More

than

+30%


FY94

FY95

FY98

FY99

FY00

FY04

FY05

FY06

FY10

FY11

FY93 FY03 FY12 FY13



<<

-30%

-20% to

-30%

-10% to

-20%

0% to

-10%

0% to

+10%

+10% to

+20%

+20% to

+30%

>>

+30%


FY94

FY00

FY02

FY04

FY95 FY06

FY93 FY96 FY05 FY08

FY03 FY98 FY11 FY10

FY97 FY16 FY07 FY12 FY13

FY09 FY99 FY01 FY18 FY14 FY17 FY15

<<

-30%

-20% to

-30%

-10% to

-20%

0% to

-10%

0% to

+10%

+10% to

+20%

+20% to

+30%

>>

+30%


FY97

FY98

FY00

FY04

FY05

FY06

FY08

FY10

FY07 FY15

FY99 FY02 FY12 FY11 FY17

FY09 FY01 FY03 FY16 FY14 FY13 FY18

<<

-30%

-20% to

-30%

-10% to

-20%

0% to

-10%

0% to

+10%

+10% to

+20%

+20% to

+30%

>>

+30%


Ambit’s Coffee Can Performance – PMS (as on Mar’19)

14

*Inception Date = 06-Mar-17; All returns are net of fees and expenses .**Returns for 1-Month,3-Months,6-Months, 9-Months & 12-Months are absolute returns

6.2%

1.5%

3.0%

18.0%

19.9%

21.5%

7.6%7.0%

6.3%

14.9%

12.6% 13.4%

0%

5%

10%

15%

20%

25%

1M 3M 6M 1Y 2Y Since Inception

Coffee Can PMS Nifty 50


Ambit’s Coffee Can Performance - Institutional (from July’14)

15

* Return for period starting July 2016 is absolute return till Feb 2017** Return from inception till Feb 2017*** TSR = Total Shareholder Return which assumes that dividends received are reinvested

Annual Return

Start Date CC Portfolio Return % Sensex TSR *** %

Jul-14 34.3% 10.5%

Jul-15 12.0% -2.1%

Jul-16* 10.6% 6.5%

CAGR since inception** 21.6% 6.0%

85

95

105

115

125

135

145

155

165

175

Jul-14

Aug-14

Sep-14

Oct-14

Nov-14

Dec-14

Jan-15

Feb-15

Mar-15

Apr-15

May-15

Jun-15

Jul-15

Aug-15

Sep-15

Oct-15

Nov-15

Dec-15

Jan-16

Feb-16

Mar-16

Apr-16

May-16

Jun-16

Jul-16

Aug-16

Sep-16

Oct-16

Nov-16

Dec-16

Jan-17

Feb-17

Based to 100

Institutional Coffee Can Portfolio Sensex TSR

*From July 2014 to Feb 2017


Ambit’s Coffee Can PMS vs Large Cap MF (As on Mar’19)

16

*Inception Date = 06-Mar-17; All Returns (except CAGR since inception) are absolute returns**Coffee Can PMS returns net of all fees & expenses***Large Cap mutual fund returns calculated based on average returns of Top 6 large cap MF (AMFI Website).

InvestmentAt Inception 6 Mar 2017

As on Mar’19

Coffee Can PMS** 25 Lacs 37.4 Lacs

Large Cap MF*** 25 Lacs 30.4 Lacs

NIFTY 50 25 Lacs 32.4 Lacs

6.2%

1.5%3.0%

18.0%

19.9%

21.5%

8.3%

5.6% 5.6%

9.2% 8.8%9.8%

0%

5%

10%

15%

20%

25%

1M 3M 6M 1Y 2Y Since Inception

Coffee Can PMS LargeCap MF

Pg 17Ambit Asset Management

PRIVATE & CONFIDENTIAL

Fund Manager

Manish Jain – Fund Manager

-Manish over 15 years of experience in deep dive equity research.

-He has worked with Nomura for 10 years as lead analyst covering FMCG,

electrical durable & retail Sectors. He was amongst the best performing analyst

in the research team with consistently strong votes from ADIA, Capital World

(Ranked No 1 for four years in running), Capital International (for strong

corporate access), FIL, FMR, Wellington, William Blair, Mirae, UBS, Morgan

Stanley, TIAA CREF, Putnam, GSAM, Allianz, Alliance Bernstein, Lion Global,

ICICI MF, ICICI Life, SBI MF, Birla MF, DSP, Franklin Templeton, amongst others.

-He holds an MBA in Finance.

Pg 18Ambit Asset Management

PRIVATE & CONFIDENTIAL

Ambit Group: An Overview

• Founded in 1997 as a boutique M&A Advisory firm, addedvarious offerings over two decades to become a full service Indiafocused Investment Bank

• Deep coverage of large and mid-cap Indian Corporates and keyIndia focused Global Corporates

• Strong corporate governance with clear demarcation betweenownership, governance and management. Owned largely byemployees

• Stable experienced team of 450+ employees

• Statutory Auditors: Deloitte Haskins & Sells

• Global presence with offices in Mumbai, Delhi, Bangalore,London, New York and Singapore

Strategic business alliance for mergers andacquisitions advisory services in Indo-Japancorridor

Strategic partnership with Qinvest offers abroad range of expertise to deliver highvalue service, seamlessly covering clientneeds across Middle East, Turkey, South andSouth East Asia, and Africa

Overview Business Verticals

Global Partnerships

ASSET MANAGEMENT

� Portfolio Management Services

CORPORATE FINANCE

� Mergers & Acquisitions (M&A) and Divestures

� Alternative Capital Raising

� Equity Capital Markets (ECM)

INSTITUTIONAL EQUITIES

� Differentiated research/Bespoke strategies

� Derivatives and Technical analysis

� Block Trading

PRIVATE WEALTH

� Proprietary Investment Products

� Open Architecture Model

� Asset Allocation, Tax and Estate Planning

SME FINANCE

� Small Business Loans

� Loans against Properties

STRUCTURED FINANCE

� Lending Solutions

� Loan Syndication

PRINCIPAL INVESTMENT

� Investing in high potential value discovery stories

� Small-Cap and Mid-Cap Public Companies

Appendix


Large Cap MFs : Pre 2010 (Jan’91 to Dec’09)

Alpha of Large Cap Equity Mutual Funds is diminishing

20

Large Cap MFs : Post 2010 (Jan’10 to Feb’17)

Inconsistency Amongst Top-Performing Funds

Source: MFI Explorer, Ambit Capital

4562 72

22

95109

22

31

36

0

50

100

150

200

250

2007-2009 2010-2013 2014-2016

Number of funds

Bottom two quartiles Top Quartile

Mean revert

(42%)

Remain in top

quartile (35%)Remain in top

quartile (36%)

Mean revert

(45%)

• Alpha of MFs for 1-year-rolling has shrunk

from 6.5% (pre 2010) to 3.2% (post 2010)

• Alpha of MFs for 10-year-rolling has shrunk

from 4.1% (pre 2010) to 0% (post 2010)

• Half of the top performing mutual funds

mean revert every 3 years

Rolling One Rolling Ten

year year

Equity BSE Equity BSE

MFs 100 MFs 100

Avg. Returns (%)

21.8 15.3 17.4 13.3

Std. Dev. (%) 46 37 7 5

Rolling One Rolling Ten

year year

Equity BSE Equity BSE

MFs 100 MFs 100

Avg. Returns (%)

16.6 13.4 15.8 15.8

Std. Dev. (%) 23 23 3 4


Examples: Earnings contribute to the bulk of TSR

21

FY 94-97 Starting P/E

Ending P/E

EPS CAGR

Share Price CAGR

ASIAN PAINTS 38 20 29% 5%

ITC LTD 40 25 19% 2%

PIDILITE INDUSTRIES 20 13 23% 5%

NESTLE 64 37 15% -4%

Average 41 24 22% 2%

Sensex 47 13 47% -4%


Ending P/E

EPS CAGR

Share Price CAGR


ITC LTD 40 16 23% 12%


NESTLE 64 25 22% 11%

Average 41 18 21% 13%

Sensex 47 19 14% 4%


Ending P/E

EPS CAGR

Share Price CAGR


ITC LTD 38 21 18% 11%


NESTLE 51 26 18% 10%

Average 29 21 16% 13%

Sensex 15 14 11% 10%

Page IndsShare price

(Rs)Mkt Cap (Rs

cr)Trailing EPS

Trailing P/E (x)

Apr-08 489 545 21 23

Apr-18 24,030 26,827 296 81

CAGR 48% 48% 31% 12%


Earnings contributed to ~80% of the share price growth


Disclaimer

22

• Ambit Capital Private Limited (“Ambit”) is a registered Portfolio Manager with Securities and Exchange Board of India.

• This presentation / newsletter / report is strictly for information and illustrative purposes only and should not be considered to be an offer,or solicitation of an offer, to buy or sell any securities or to enter into any Portfolio Management agreements. This presentation / newsletter/ report is prepared by Ambit strictly for the specified audience and is not intended for distribution to public and is not to be disseminated orcirculated to any other party outside of the intended purpose. This presentation / newsletter / report may contain confidential or proprietaryinformation and no part of this presentation / newsletter / report may be reproduced in any form without its prior written consent to Ambit.If you receive a copy of this presentation / newsletter / report and you are not the intended recipient, you should destroy this immediately.Any dissemination, copying or circulation of this communication in any form is strictly prohibited.

• Neither Ambit nor any of their respective affiliates or representatives make any express or implied representation or warranty as to theadequacy or accuracy of the statistical data or factual statement concerning India or its economy or make any representation as to theaccuracy, completeness, reasonableness or sufficiency of any of the information contained in the presentation / newsletter / report herein,or in the case of projections, as to their attainability or the accuracy or completeness of the assumptions from which they are derived, and itis expected each prospective investor will pursue its own independent due diligence. In preparing this presentation / newsletter / report,Ambit has relied upon and assumed, without independent verification, the accuracy and completeness of information available from publicsources. Accordingly, neither Ambit nor any of its affiliates, shareholders, directors, employees, agents or advisors shall be liable for anyloss or damage (direct or indirect) suffered as a result of reliance upon any statements contained in, or any omission from this presentation/ newsletter / report and any such liability is expressly disclaimed.

• You are expected to take into consideration all the risk factors including financial conditions, Risk-Return profile, tax consequences, etc. Youunderstand that the past performance or name of the portfolio or any similar product do not in any manner indicate surety of performanceof such product or portfolio. You further understand that all such products are subject to various Market Risks, Settlement Risks, EconomicalRisks, Political Risks, Business Risks, Financial Risks etc. You are expected to thoroughly go through the terms of the arrangements /agreements and understand in detail the Risk-Return profile of any security or product of Ambit or any other service provider before makingany investment. You should also take professional / legal /tax advice before making any decision of investing or disinvesting. Ambit orAmbit associates may have financial or other business interests that may adversely affect the objectivity of the views contained in thispresentation / newsletter / report.

• Ambit does not guarantee the future performance or any level of performance relating to any products of Ambit or any other third partyservice provider. Investment in any product including mutual fund or in the product of third party service provider does not provide anyassurance or guarantee that the objectives of the product are specifically achieved. Ambit shall not be liable to client for any losses that youmay suffer on account of any investment or disinvestment decision based on the communication or information or recommendationreceived from Ambit on any product. Further Ambit shall not be liable for any loss which may have arisen by wrong or misleadinginstructions given by you whether orally or in writing.

Thank You

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Ambit Coffee Can Portfolio€¦ · Portfolio composition = Concentrated portfolio of 10-15 stocks...

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